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Informist, Wednesday, Jan. 7, 2026

MUMBAI – On Thursday, government bond prices and overnight indexed swap rates are seen tracking the overnight movement in US Treasury yields. However, bond prices and swaps are likely to react to US yield movements only if the 10-year US yield falls below 4.10% or rises above 4.20%, the current trading range, dealers said. Traders await the US employment report for December for further cues ahead of the US Federal Open Market Committee's meeting scheduled for the end of the month.

The US will release the weekly unemployment data after Indian market hours Thursday while non-farm payrolls data for December are scheduled for release after Indian market hours Friday. Market participants also await the announcement of the inclusion of India's fully accessible route bonds in Bloomberg's flagship Global Aggregate Index. The announcement is expected this month. The rupee's movement against the dollar in early trade will also provide cues for bond prices, as will the movement in crude oil prices.

Thursday, the one-day call money rate may open near the RBI's repo rate of 5.25% after outflows of INR 400 billion to INR 500 billion for tax payments, dealers said. The RBI's variable rate repo auction may ease the upward pressure on rates, depending on how much subscription the auction garners. The central bank will conduct an overnight variable rate repo auction for INR 1.25 trillion 0930-1000 IST. Any redemption pressure on mutual funds will put further upward pressure on rates, dealers said. During the day, the one-day call money rate is expected to move in a range of 4.70-5.50%, dealers said.

GOVERNMENT BONDS

On Thursday, gilt prices are expected to track overnight movements in US Treasury yields at the open, given the lack of significant domestic cues. Traders will position for the weekly gilts auction Friday, where the government will sell INR 160 billion of the 6.68%, 2040 bond and INR 130 billion of the 6.90%, 2065 bond.

After strong demand from long-term bond investors such as insurance companies and pension funds at the past two state bond auctions and recent gilt auctions, demand for the 6.90%, 2065 bond is seen to be robust, and its cut-off price could be at secondary-market levels, dealers said. Demand for the 15-year 6.68% 2040 paper would hinge on banks' appetite. Dealers said if foreign portfolio investors are buying the 15-year gilt in the secondary market, they could also bid for the bond at auction through foreign banks. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.57-6.65%. Wednesday, it ended at INR 99.06, or 6.61% yield.

OIS RATES

Swap rates may open steady on caution ahead of key US data points in the latter half of the week. The movement in US Treasury yields before the scheduled labour market data may lend cues to swap rates, dealers said. The impact of the data on US rate expectations and US yields will influence domestic OIS rates. Without a strong trigger, the five-year swap rate is not seen falling below 5.89%, dealers said.

Traders will closely track technical levels on swaps, as the five-year swap neared the key 6.00% level earlier in the week. The one-year swap rate is seen at 5.40-5.52% and the five-year at 5.85-6.12%. The one-year rate Wednesday ended at 5.46% and the five-year rate at 5.92%.

CALL

The one-day call money rate may open near the RBI's repo rate of 5.25% after outflows of INR 400 billion to INR 500 billion for tax payments, dealers said. The RBI's variable rate repo auction may ease the upward pressure on rates, depending on how much subscription the auction gets. The central bank will conduct an overnight variable rate repo auction for INR 1.25 trillion 0930-1000 IST. Any redemption pressure on mutual funds will put further upward pressure on rates, dealers said.

Systemic liquidity is seen returning to a comfortable surplus by next week, after one gilt redemption and two tranches of open market operation auctions add nearly INR 2 trillion of liquidity by Jan. 12 and a three-year $10 billion dollar-rupee buy-sell swap auction on Jan. 13 that will add to durable liquidity. During the day, the one-day call money rate is expected to move in a range of 4.70-5.50%, dealers said. The one-day call rate ended at 5.35% Wednesday.

RBI AUCTION

--RBI to hold overnight variable rate repo auction for INR 1.25 trillion 0930-1000 IST Thursday 

LIQUIDITY

Total net inflows of INR 60.42 billion. The calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and variable rate reverse repo operations.

* Inflows

--INR 141.00 billion as redemption of 91-day Treasury bills

--INR 83.00 billion as redemption of 182-day T-bills

--INR 81.71 billion as redemption of 364-day T-bills

--INR 20.28 billion as coupon on state bonds

--INR 37.43 billion as coupon on 7.17%, 2028 gilt

* Outflows

--INR 90.00 billion as payment for 91-day T-bills

--INR 133.00 billion as payment for 182-day T-bills

--INR 80.00 billion as payment for 364-day T-bills

End

US$1 = INR 89.8800

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Cassandra Carvalho

Edited by Rajeev Pai

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